Amazon, Apple probed for fixing e-book prices

By Annalyn Censky, staff reporterAugust 2, 2010: 5:33 PM ET

NEW YORK (CNNMoney.com -- In the e-book price wars, Apple and Amazon might be enjoying an unfair advantage, Connecticut's Attorney General Richard Blumenthal said Monday as he announced an investigation of their contracts with book publishers.

Blumenthal fired off letters to each company requesting that their attorneys schedule a meeting with his office to discuss their deals with five of the largest e-book publishers in the U.S.: Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin.

Both Amazon (AMZN, Fortune 500) and Apple (AAPL, Fortune 500) have agreements with those publishers that ensure they'll receive the best prices for e-books over any of their competitors, Blumenthal said in a prepared statement.

Those agreements -- dubbed "most favored nation" clauses -- block the publishers from offering deeper discounts to competitors than they do to Amazon and Apple. While such deals aren't straight-out illegal under antitrust laws, they're also not always legal either, Blumenthal said in his letters.

"The concerns are compounded, and hence potentially more troublesome, since this arrangement appears to be something that will be agreed to by the largest e-book publishers in the United States and two competitors who combined will likely command the greatest retail e-book share," Blumenthal wrote.

To Apple, he added: "If recent history is a predictor of future results, I fully expect that Apple's iPad tablet will soon attract (if it has not already) an important share of the e-reading device market."

Blumenthal said his office surveyed e-book prices for several bestsellers offered by Amazon and Apple, as well as competitors Borders Group (BGP) and Barnes & Noble (BKS, Fortune 500), and found prices were identical across all four companies.

"These agreements among publishers, Amazon and Apple appear to have already resulted in uniform prices for many of the most popular e-books -- potentially depriving consumers of competitive prices," Blumenthal said in a statement.

Uniform pricing is becoming less common, however, since Apple and Amazon -- under intense pressure from publishers -- adopted the so-called "agency model" earlier this year with several major publishers. That system allows publishers to set the price for their books -- and many are pushing for rates higher than the $9.99 Amazon tried for years to make the industry standard for new e-book releases.

But Amazon still typically offers new releases for lower rates than its rivals. For example, its current bestselling new release book -- Suzanne Collins' Mockingjay, due out in late August -- is priced at $8.45 for a Kindle e-book. That e-book is priced at $9.99 on Barnes & Noble's website.

Apple and Barnes & Noble declined to comment. Amazon did not immediately respond to requests for comment.

Blumenthal isn't the only consumer advocate probing e-book pricing: The Texas attorney general made his own inquires earlier this year, according to the Wall Street Journal.

E-book publishing consultant Mike Shatzkin, chief executive of Idea Logical, says the e-book market is extremely "confused," thanks largely to Amazon's long-running attempt to dictate terms. Its tight grip on a $9.99 price point -- one that buyers like but publishers consider unsustainably low -- has kept pricing from hitting an equilibrium that appeases both retailers and suppliers

The fight has been intense: Earlier this year, Macmillan threatened to withhold its e-books from Amazon unless the retailer agreed to let Macmillan raise prices to $12.99 to $14.99 for bestsellers and most hardcover releases. Amazon capitulated, but it also temporarily stopped selling all of Macmillan's books in retaliation.

Shatzkin thinks it will take a court case or regulatory action to truly level the e-book playing field.